Compatibility of Cooperation Agreements with Russian Competition Rules

Recently, the Russian Antimonopoly Service ("FAS") recognized as prohibited the provisions of the distribution agreement between the leading German car manufacturer and its Russian dealers that restricts the dealers to sell the cars to Russian officials. The background for such FAS conclusion was that the car manufacturer intended to sell the cars directly to this category of consumers. FAS stated that such restriction violates Russian antitrust law.

Certain restrictions with respect to the cooperation between companies are provided for by Russian Federal Law No. 135-FZ "On Protection of Competition" ("RCL") dated 26 July, 2006.

Now, with the fourth antimonopoly package, new guidelines will serve as a framework to help companies conduct their own case-by-case assessment of the compatibility of cooperation agreements with Russian competition rules.

The importance of these restrictions is confirmed by potentially high fines in case of violation. The amount of the fines is linked to the turnover of the company. It can be up to 15% of the annual turnover of the involved parties on the market on which the violation of the RCL took place. However, if the annual turnover on the respective market constitutes more than 75% of the aggregate turnover on all markets of the respective company, the fine is limited to 3% of the company’s annual turnover.

1. Horizontal Agreements (Cartel)

Horizontal agreements are agreements between competitors. Currently, competitors are legal entities acting on the same sales market. However, in the future legal entities acting on the same purchasing market, too, will possibly be regarded as competitors, based on the so-called fourth antimonopoly package which is intended to amend the RCL.

Prohibited as hard-core cartels (Art. 11(1) RCL) are agreements between the above- mentioned parties if these agreements lead to or can lead to:

• Price fixing (especially at tenders);
• Market and/or customer allocation;
• Capacity or production restrictions;
• Refusal to conclude contracts with certain sellers or buyers.

In addition, horizontal agreements are also prohibited if they lead to or can lead to any restrictions of competition (Art. 11 (4) RCL).

2. Vertical Agreements

Vertical agreements are concluded between non competing suppliers and purchasers.

Vertical agreements are prohibited if they lead to or can lead to:

• Restrictions of the buyer's ability to determine its (re)sale price. A maximum resale price recommendation, as well as legally & factually non-binding price recommendations are permitted;
• Restrictions for the buyer to sell goods of the seller’s competitors, unless the buyer operates as a company under the brand of the seller.

The typical violations are restrictions of the territory where a purchaser may sell the contract goods or services (“territorial restriction”) and restrictions regarding customers to whom a purchaser may sell the contract goods or services (“customer restriction”).

Certain exemptions apply for vertical agreements. Vertical agreements are generally permitted, inter alia, if:

• (i) the supplier has a market share of less than 20% on the relevant market where the contract goods are sold, and (ii) the purchaser has a market share of less than 20% on the relevant market where the contract goods are purchased;

or

• (i) the supplier sells the goods to 2 or more buyers, (ii) the supplier has a market share of less than 35% on the relevant market where the contract goods are sold, (iii) supplier and purchaser do not compete with each other, and (iv) the purchaser does not produce goods similar to the goods produced by the supplier.

3. Other Commercial Agreements

Other commercial agreements including vertical and horizontal agreements are prohibited if they lead or at least can lead to the restriction of competition (Art. 11 (4) RCL). This includes, inter alia:

Other commercial agreements including vertical and horizontal agreements are prohibited if they lead or at least can lead to the restriction of competition (Art. 11 (4) RCL). This includes, inter alia:

• Imposition of disadvantageous contractual conditions on the other party which do not relate to the subject matter of the agreement;
• Unjustified determination of different prices for the same goods;
• Creation of barriers for other companies to enter or leave the respective market;
• Determination of conditions of membership in professional and other associations.

4. Inter-Company Agreements

The restrictions listed above do not apply to inter-company agreements. Agreements in a parent-subsidiary relationship or agreements between sister companies under direct or indirect joint control of one parent do not violate the RCL even in case there are anticompetitive provisions in these agreements. A corresponding control generally requires holding of more than 50% of shares. However, the exemption does not apply if any group company being part of the agreement holds a dominant position on the respective market.